During the second half of January, diesel and heating fuel prices surged. The largest
increases occurred in the distillate-based fuels (heating oil and diesel) in the
Northeast.

From January 17, New England residential heating oil prices rose over 78 cents per
gallon to average $1.97 February 7; diesel increased 68 cents per gallon, averaging $2.12
February 7, but fell back to $1.93 by February 14 as new supplies are arriving.

The main factors driving up these prices were low stocks leading into January, followed
by a bout of severe weather that impacted both supply and demand.

Demand: Cold weather increases core heating customer demand. In addition, it was
reported that utilities were buying distillate both for peaking power and, along with
industrial and commercial users, to substitute for interruptible natural gas supplies,
further adding to the market pressure. Finally, refinery outages during the week ending
January 21 sent more distillate buyers into the market as local supplies in the Northeast
were temporarily drained, and prices spiked.

Supply: Weather hindered flows of product to the Northeast as high winds kept barges
from landing in New York Harbor and frozen rivers slowed crude oil and product flow
throughout the Northeast.

Although new supply is arriving, the problem is not resolved. Stocks remain low, and we
could see a recurrence before the end of winter.

The low stock situation is worldwide and is not limited to distillate. It stems from
what is happening in the crude oil markets. A continuing crude oil supply shortage is
driving crude prices up and causing refiners worldwide to draw down stocks as the higher
crude prices squeeze margins.